Despite Recessionary Fears, IE Labor Market Continues To Show Strength; Demand For Warehouse Space Surges As E-Commerce Spending Continues
Throughout the pandemic, the Inland Empire’s relatively affordable housing market has been a bright spot in the local economy and home price growth has outpaced more expensive neighboring areas. That affordability, however, has diminished in the face of today’s higher mortgage rates and in the context of elevated demand and extraordinarily high-priced markets across the state, according to an analysis released today by the UCR School of Business Center for Economic Forecasting and Development.
Today, only 31% of local households can afford to purchase a median-priced home in the Inland Empire, a decrease from a relatively low 39% in the first quarter of 2021. Still, the region remains one of the most affordable in all of Southern California and is more affordable than the state as a whole where just 24% of households can afford a median-priced home.
“Honestly, this is what affordability looks like in California,” said Taner Osman, Research Manager at the UCR Center for Economic Forecasting and one of the report’s authors. “Housing prices are at the crux of the state’s famously high cost of living and are out of reach to the majority of the population as lack of supply enduringly and severely lags demand.” The contrast with the nation overall, where 45% of households can afford median-priced homes, is stark.
As of April 2022, there were only 1.7 months of housing supply available for purchase in Riverside County and 2.2 months in San Bernardino County. A balanced market typically has 6 to 7 months of supply. Moreover, homebuyer demand, which intensified due to the pandemic-driven economic stimulus, remains high as home sales decrease in the face of limited inventory.
Key Findings Include:
- No Labor Market Slowdown Yet: Despite growing recessionary fears, the short-term economic forecast for the Inland Empire is strong. The labor market continues to show vigor with an unemployment rate (3.7%) that is lower than it was pre-pandemic (4.1%). More than 280,000 jobs have been added in the region since April 2020, surpassing the 228,000 that were lost due to pandemic-related shutdowns.
- Inflation Chips Away At Wage Growth: Local wage growth has been strongest in Riverside County where wages increased 3% from the third quarter of 2020 to the third quarter of 2021 (the latest data available). Wages in San Bernardino County have grown 1.7%. Despite the upturn, real wages decreased during the year due to high inflation.
- Consumer Demand, Fuel Prices Send Taxable Sales Soaring: Taxable sales receipts in the Inland Empire jumped a hefty 23.8% in the latest annual data. The surge has been primarily driven by high fuel prices and more spending in the Business and Industry category where receipts swelled 57%. Fuel and Service Station receipts expanded almost as much (56%).
- E-Commerce Trends Keep Warehouse Space Red Hot: In the last edition of this report, the vacancy rate among warehouse properties in the Inland Empire was an already low 3.6%. As of the first quarter of 2022 (the latest data available), the vacancy rate has fallen to 3.2% despite a whopping 34.6 million square feet of new space coming online. Driven by strong consumer spending in E-Commerce, warehouse space has become increasingly scarce and asking rents in the Inland Empire grew 6.3% in the latest data. But the region is still more affordable than Los Angeles, San Diego, or Orange Counties.
- Rental Market Surges: Demand for apartments continued to intensify in the Inland Empire over the last year with the vacancy rate falling to 3% and asking rents expanding by more than 21% to reach an average of $1,807 per month per unit. But even with the increase, rent in the region is significantly more affordable then in Los Angeles ($2,236), Orange ($2,335), and San Diego ($2,226) Counties.
The new Inland Empire Regional Intelligence Report was authored by Osman and Senior Research Associate Brian Vanderplas. The analysis examines how the Inland Empire’s labor market, real estate markets, and other areas of the economy have recovered from the COVID-19 pandemic and their outlook for the remainder of the year.
The complete analysis is available here.
Economic impact of Ontario International Airport is felt across the region, new study shows
Economic impact report was released during State of the Airport event, celebrating ONT’s sixth anniversary under local ownership; Southern California’s Ontario International Airport has a regional economic impact of $3.8 billion.
Ontario International Airport (ONT) is an economic engine for Southern California, generating $3.8 billion a year in activity, supporting 27,800 jobs and serving as the hub of a global logistics network that produces $17.8 billion in economic output, a new study shows.
The analysis, by Oxford Economics, was released Tuesday as more than 300 Inland Empire officials, industry executives and friends of ONT celebrated the aviation gateway’s sixth anniversary under local ownership. The State of the Airport event showcased Ontario’s impressive expansion of flights, destinations and customer amenities over the past six years, its emergence as one of the Top 10 cargo airports in North America and its role as an economic driver across the IE and Southern California.
“As we believed on this day six years ago, Ontario International is more than an airport. It is the heart of one of the fastest-growing population and economic centers in the U.S., providing a foundation for solid economic growth for years to come. And it is the public treasure we envisioned for the City of Ontario and San Bernardino County,” said Alan D. Wapner, President of the Ontario International Airport Authority (OIAA) Board of Commissioners and Mayor pro Tem of the City of Ontario.
The Oxford Economics study incorporated nearly a year’s worth of research, concluding that the overall impact of economic activity at ONT – from airport operations, airlines and their suppliers, government workers, airport concessions and logistics companies – totals $3.8 billion as of 2022. This includes $2.7 billion in visitor spending, Oxford reported.
“Ontario International Airport plays an integral role in the economy of the Southern California region, specifically in and around the Inland Empire,” the report stated, adding that ONT’s economic impact includes $2.2 billion in regional gross domestic product (GDP), which supports 27,800 jobs and results in $571 million a year in local, state and federal taxes.
Oxford also looked at ONT’s role a supply chain hub, analyzing logistics activity in the eight zip codes adjacent to the airport. The results placed Ontario International at the center of a global network that accounts for $17.8 billion in economic output, $9.9 billion of GDP, 122,200 jobs and $2.3 billion in local, state and federal taxes.
“The economic impact of Ontario International Airport is felt across the region and around the world. We’re excited to be able to share our story with the communities and shareholders we serve, and look forward to building on our position as the gateway of choice for millions of Southern Californians,” said OIAA CEO Atif Elkadi.
Since ONT’s return to local ownership on November 1, 2016, passenger volumes have increased by nearly 33%, despite the impact that the COVID-19 pandemic had on global air travel. This year’s passenger totals are expected to reach 5.8 million, the highest level since 2008. Ontario’s 11 domestic and international airlines in November 2022 offer 479 weekly departures and more than 75,000 airline seats to more than two dozen popular nonstop destinations. That’s an increase of 18.9% in departures and 43.4% in seats since 2016.
In recent years, ONT’s cargo facilities have experienced double-digit increases in commercial freight shipments as demand for consumer goods, household supplies and other daily necessities skyrocketed among consumers. Shipments of commercial freight and mail total approximately 75 tons a month, 57% more than 2016.
“The Inland Empire is home to one of the most important supply chain networks in the world, and Ontario International is at the heart of that,” said Curt Hagman, OIAA Commissioner and Chair of the San Bernardino County Board of Supervisors.
The State of the Airport event also featured an engaging fireside chat with Barry L. Biffle, chief executive officer of Frontier Airlines, a five-year ONT tenant which operates 45 flights a week to six U.S. destinations. The discussion was led by award-winning author Scott McCartney, Travel Editor Emeritus of The Wall Street Journal and writer of the Journal’s popular “Middle Seat” column which was a must-read for travel enthusiasts for two decades.
McCartney and Biffle discussed the airline industry’s pandemic recovery, the future of global air travel and the Frontier’s plans for air travel from ONT.
Rising Interest Rates Driving A Housing Market ‘Pause’ in California’s Major Metros; But No Significant Market Correction in Sight, Says Leading Forecast
Job Growth Continues Its Slowdown Across State’s Regions; Consumer Spending Well Above Trend In All Metros
The housing markets in California’s major metropolitan regions continue to show signs of slowing although a leading forecast says significant price declines are still nowhere in sight. Beacon Economics does not have a housing ‘correction’ in its current forecast and, according to an analysis the firm released today, expects nominal prices in the state’s metro areas to trend sideways into 2023.
“There is a big difference between a housing pause and a housing bust,” said Taner Osman, Research Manager at Beacon Economics and one of the report authors. “While price growth has slowed considerably, and even dropped in some markets, there are few signs of structural weakness in the housing market that would suggest a major correction, and it’s likely that prices will start to pick up when interest rates begin to decline.”
Across regions, weakness in the housing market is being driven by a slowdown in sales, which in turn, is being driven by rising interest rates. According to the analysis, even after accounting for local inflation, the real cost of owning a home in California’s major metros has risen between 23.1% and 25% since the start of the year.
These mounting carrying costs caused home sales to fall substantially during the first half of 2022 across major market segments in Los Angeles (12.1% decline in existing home sales, 19.3% decline in new home sales), San Francisco (11.4% decline in existing home sales, 22.6% decline in new home sales), the South Bay/San Jose (24.2% decline in existing home sales, 38.9% decline in new home sales), San Diego (16% decline in existing home sales, 25.9% decline in new home sales), and the East Bay/Oakland (19.8% decline in existing home sales, 22.6% decline in new home sales).
“A market response to changes in interest rates is normal and the slowing pace of sales is part of that process,” said Osman. Notably, over the same period (first half of 2022), home prices increased between 10.6% and 20.7% in these metro areas.
The new outlook also examines employment in the state’s major metros and (as reported last quarter) forecasts job growth to continue slowing as the available labor pool dwindles. Of the metro areas studied, only San Diego has surpassed its pre-pandemic employment level although the other regions are close and expected to reach that mark in 2023. Moreover, the unemployment rates in all regions except Los Angeles continue to be abnormally low from a historical standpoint. At 5%, Los Angeles’s rate is approaching pre-pandemic levels and at the lower end of what is typical for the area.
Consumer spending in each metro area has rebounded substantially over their historic trend. However, the new outlook estimates that taxable sales remain lower than they would have been if the pandemic had never occurred in both San Francisco and the East Bay/Oakland.
Will The U.S. Economy Fall Into Recession In 2023?
Will The U.S. Economy Fall Into Recession In 2023? Only If The Fed Intensifies Current Tightening Policies; Consumers To Make Up For Weakness In Other Parts Of The Economy
California On The Verge Of Recovering All Jobs Lost Since Pandemic; Investors Buying Up Larger Share Of Homes In The Inland Empire
The U.S. economy has little chance of falling into a recession this year or next unless the Federal Reserve raises interest rates more than they are currently projecting, according to a new forecast released yesterday at the 13th annual Inland Empire Economic Forecast Conference, hosted by the UC Riverside School of Business.
“Although there are signs of stress in parts of the economy, the wealth created by the excessive fiscal stimulus enacted in 2020 and 2021 continues to drive a consumer consumption binge that will propel the economy forward,” said Christopher Thornberg, Director of the UCR Center for Economic Forecasting & Development and one of the forecast authors. “The only possible thing that could tip things downward in the near-term is if the Fed applies even more aggressive quantitative tightening to control inflation than they’re now projecting.”
If the Fed stamps out inflation in the near-term by forcefully reducing its balance sheet, it will drive up interest rates, cool financial markets sharply, and possibly create a modest recession next year led by consumer cutbacks, according to the new outlook. However, in the longer term, if Fed action is inadequate, the United States may be looking at several years of very weak growth, with consumers in a relatively poor financial position at the end.
“This is now a balancing act,” said Thornberg. “Functionally speaking, policymakers went from maximum acceleration – the stimulus – to maximum braking – tightening by the Fed – over a single year, something that would create turbulence in even the healthiest economy.”
Although the new forecast is predicting economic growth to continue in the nation, California, and the Inland Empire in the short run, albeit at a slower pace (“we’ve cooled from white-hot to red-hot”), in the longer term, the major economic wildcard comes from the growing Federal deficit. According to the new forecast, much will depend on how long bond markets are willing to tolerate the excessive level of today’s U.S. government debt.
In California, the state is on the brink of a milestone: recovering all the jobs it lost during the pandemic-driven downturn and mass retirement. While many states have already reached full recovery, as of this writing, California still has a 47,300 job deficit. However, it’s increasingly likely that the state’s job count will be above water by the end of this year, according to the forecast.
- In the United States, inflation is moderating and may have peaked, but it won’t decelerate rapidly. Expect price growth and interest rates to remain elevated in the near term.
- Consumer spending now accounts for the highest share of U.S. GDP since 2006. This consumption is also apparent in the rapidly growing U.S. trade deficit, which accounts for the largest a share of GDP since the runup to the Great Recession.
- There is a massive amount of equity in the current U.S. housing market driven by a decade of low mortgage debt accumulation. The industry also has very low inventories of existing homes for sale and vacancy rates are still at a record low level. This is not a market that is due for a collapse—at least not yet.
- The major problem for new housing is the ultra-low mortgage rates homeowners currently enjoy. Anyone who sells now will have to go from a sub-3 rate to something in the 5+ category. That is not a move most homeowners make—unless they have to. The ‘move-up’ market is all but frozen.
- California’s employment recovery has been uneven, with inland communities faring better than coastal areas. The Inland Empire has 5% more jobs today than it had prior to the pandemic, while at the other end of the spectrum, there are still 3% fewer jobs in Ventura County.
- California’s labor force contracted during the pandemic and employers have struggled to find workers, especially in coastal communities. The primary reason behind the labor force changes is population growth. From 2019 to 2022, population grew in inland communities and declined in coastal communities, driven by affordability.
- After two years in which California’s housing market went gangbusters, and home prices increased an average 43%, the rising interest rate environment, in addition to stretched prices, has led to a major slowdown in 2022. A price crash in the market is nowhere in sight, although a slowdown in price growth is expected.
- The share of homes purchased by investors in the Inland Empire is at record highs. This parallels the nationwide interest by private equity in purchasing large swaths of residential real estate. This forecast expects the share of homes purchased by investors in the region to increase.
- Current sale price cuts for homes in the Inland Empire are more of a reality check than a price decline warranting concern. The rate of bidding wars has only dipped to levels seen in the early part of 2020.
- The Inland Empire has experienced a tremendous boom in Transport and Logistics employment (16.6% of all jobs in the region are now in this sector). The Information sector has also grown, but lags other employment categories, highlighting the relative underrepresentation of knowledge workers in the region. This forecast expects employment in the Inland Empire to continue expanding, although at a tapered pace.
The 13th annual Inland Empire Economic Forecast Conference was held on October 5th. A copy of the forecast book can be downloaded in its entirety here.
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